The week in GRC: Brexit may complicate global sanctions compliance, and SEC proposes MD&A changes

Jan 31, 2020
This week’s governance, compliance and risk-management stories from around the web

CNBC reported that Swedish oil company Lundin Petroleum vowed to become carbon-neutral by 2030 and replace ‘Petroleum’ with ‘Energy’ in its name. The company said it will reach carbon neutrality by cutting emissions from operations, improving energy efficiency and developing carbon-capture mechanisms. The announcement comes as oil and gas companies face growing pressure from investors and climate activists over the part they play in greenhouse gas emissions.

BP, Shell and Total have also announced decarbonization efforts in recent months.

– According to Reuters, Prague-based Krupa Global Investments (KGI) urged Swiss asset manager GAM Holding to create a shareholder committee that would look into attracting a strategic investor. Krupa, which says it controls roughly 3 percent of GAM through direct stock holdings and derivatives, said it would propose a candidate for GAM’s board of directors at the 2020 annual meeting if GAM does not present a convincing strategy update.

‘We bought more shares of GAM recently because we have faith in future (prospects) of this business and its importance but we are not satisfied with management’s silence and communication toward investors,’ KGI chair Pavol Krupa said.

‘GAM conducts an active and regular exchange with our shareholders but we cannot comment on individual shareholders in this context,’ the firm said, adding that it would give a strategy update alongside its annual results on February 20.

The Wall Street Journal reported that, according to people familiar with the matter, Europe’s main banking regulator is trying to clear the path for mergers between the region’s lenders amid growing belief that scale is the key to reviving the industry. The regulator is making this softer stance toward potential tie-ups known privately, according to bankers, supervisors and analysts. Some of its officials have also publicly discussed the issue in recent speeches.

The European Central Bank’s ability to foster deals depends on the willingness of banks to get together. Traditionally it has sometimes proved difficult because of disagreements between companies regarding board composition, executive leadership and shareholder structure of the proposed merged bank.

Reuters reported that a group of former US officials and attorneys issued a report calling for Congress to beef up and clarify the law around insider trading that they argue has ‘generated confusion’ and ‘failed to keep up with the times’. The US needs a specific law to prohibit insider trading rather than continuing to base that standard on rules against fraud and deception, according to a task force led by former US attorney for the Southern District of New York Preet Bharara.

The task force recommended a legislative fix that outlines elements of insider trading with a focus on material, non-public information that is ‘wrongfully’ obtained or communicated, according to the report. ‘If we move to a standard that talks about wrongfully obtaining information, it will cover conduct that unquestionably involves the same conduct as insider trading but do so more clearly,’ said Joon Kim, vice chair of the group and former acting US attorney for the Southern District of New York.

The group also included Columbia University Law School’s Professor John Coffee, former SEC commissioner Joseph Grundfest and senior New York District Judge Jed Rakoff.

– Trading platform MarketAxess Holdings is changing its systems to help traders find green bonds at a time when asset managers are scrambling to offer their clients fixed-income funds that meet ESG guidelines, according to the WSJ. Sales of new green bonds, which are used by governments and companies to fund efforts such as renewable energy facilities, increased by more than 20 percent last year but the amount of securities available for trade remains small.

‘We’d be supportive of anything that provides liquidity and transparency into what is a green bond and what is not,’ said Bonnie Wongtrakool, global head of ESG investments at Western Asset Management. ‘Liquidity is king.’

– According to the WSJ, the SEC is sharing with financial services firms the kinds of cyber-security practices it has found during audits, giving them detailed information on how to handle sensitive data and seek to prevent cyber-attacks. The SEC’s observations are the latest in a series of efforts by regulators and government agencies showing that they are increasingly concerned about corporate cyber-security practices.

The National Security Agency recently released guidance on how companies should secure their cloud-based services. A number of points raised in that guidance are similar to the SEC’s recommendations, such as using multi-factor authentication, maintaining patching programs and encrypting data traffic.

– Deutsche Bank said its management board has decided to halve 2019 bonuses for individual directors as the bank faces a large 2019 loss, Reuters reported. Detlef Polaschek, deputy chair of the bank’s supervisory board, said in a statement that the board decided to waive individual performance-related remuneration to contribute to the bank’s turnaround. ‘Both shareholder and employee representatives welcome this decision, which deserves respect,’ Polaschek said.

CNN reported that J Crew has turned to Jan Singer to lead its turnaround as CEO. Singer became Victoria’s Secret CEO in 2016 but left the company in 2018 amid a sales decline and competition from online lingerie brands. She has also been CEO of Spanx and has worked in executive roles at Nike and other retailers. J Crew pointed to Singer’s ‘significant experience in building global consumer brands and consumer and retail leadership.’

CNN reported that the Church of England is investing £600 million ($780 million) in a new stock market index that tracks companies aligned with the goals of the Paris Agreement on climate change. The index launched on the London Stock Exchange and was designed by the Church of England Pensions Board, exchange operator FTSE Russell and climate investor group Transition Pathway Initiative. The investment vehicle rewards companies that are tackling climate change and excludes or lowers the weighting of those that are not taking the same sustainability steps.

The move by the pensions board follows similar commitments by some of the world’s biggest pension funds and asset managers, such as BlackRock.

– According to CNBC, Facebook revealed its proposed bylaws for the company’s oversight board, which could theoretically overturn content moderation decisions. Facebook CEO Mark Zuckerberg announced the oversight board in November 2018 as the company faced criticism regarding its privacy and content moderation practices. Facebook has now outlined the bylaws of the oversight board, establishing its powers and its broad limitations.

Decisions made by the oversight board will, however, by default apply narrowly to the specific piece of content that is being reviewed and will not create precedents that Facebook must follow in the future for similar types of violations. The company will still have the final say on whether or not to broadly apply the decisions of the board. Facebook said it plans to announce board members and trustees in the coming months.

– The WSJ said international companies operating in China are closing stores, scaling back operations and restricting travel amid the spread of the coronavirus. Large international companies are curbing travel to China, and airlines are suspending flights. US workers returning from China are being asked by companies to work remotely for weeks as a precaution.

Kraft Heinz is among the companies that have introduced employee travel bans to and from China. ‘This will help reduce the unnecessary risk of virus exposure or transmission and is the most prudent measure to take while we continue to closely monitor the situation in China,’ said a Kraft Heinz spokesperson. Some companies are starting to warn that the virus will hurt financial results.

– According to the WSJ, Brexit could lead to major changes to the UK’s sanctions policy, which in turn could complicate compliance for multinational companies. Although the UK is due to officially withdraw from the EU on Friday, an agreement approved Wednesday by the European Parliament provides for a transition period until December 31. That will enable companies to adapt their compliance programs gradually, according to Liesbeth Truyens, a managing associate specializing in EU sanctions at Linklaters.

‘Come December 31, there will be more divergence, and companies need to follow those two similar but different sanctions regulations,’ said Herbert Smith Freehills partner Susannah Cogman. Compliance officers and sanctions lawyers will be monitoring whether the UK’s sanctions policy ultimately diverges or aligns with the policies set by the EU or the US.

CNBC reported that CBS chief executive and chair Joe Ianniello is leaving the company. George Cheeks, vice chair of NBCUniversal Content Studios, will take over as CEO and president of CBS Entertainment Group, effective March 23. Cheeks will report to ViacomCBS CEO Bob Bakish. Ianniello was appointed as acting CEO of CBS while the company looked for a successor for Les Moonves.

‘I’m grateful to Joe for his many contributions to CBS and for the meaningful role he has played in bringing the CBS and Viacom teams together,’ Bakish said in a statement. ‘Thanks in no small part to his efforts, the CBS brand has a strong and loyal following across a variety of platforms – positioning it well for this important next chapter.’

– The SEC proposed amendments that it said are intended to ‘modernize, simplify and enhance certain financial disclosure requirements in Regulation SK.’ The proposed amendments would eliminate duplicative disclosures and modernize and enhance management discussion and analysis (MD&A) disclosures. This, the commission said, would benefit investors while simplifying compliance efforts for companies. The commission also announced that it is providing guidance on key performance indicators and metrics in MD&A.

– IBM chief executive Ginni Rometty, who has led the tech company since 2012, will step down in April, according to CNN. Rometty will be succeeded by Arvind Krishna, who is senior vice president for cloud and cognitive software. Red Hat CEO Jim Whitehurst will become IBM’s president. Both changes take effect on April 6. Rometty will remain executive chair of IBM until her retirement at the end of the year.


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